On Monday, shares of major health insurers that operate pharmacy benefit managers (PBMs) experienced significant declines after U.S. President-elect Donald Trump criticized these entities as “middlemen” who unnecessarily inflate drug costs. According to Reuters, Trump’s comments, made during a news conference at his Mar-a-Lago club, targeted companies like CVS (CVS) Health’s Caremark, Cigna’s (CI) Express Scripts, and UnitedHealth (UNH) Group’s Optum, which together dominate a substantial portion of the U.S. PBM market.
PBMs play a crucial role in the pharmaceutical supply chain by negotiating drug prices with pharmacies and manufacturers, creating drug formularies for health plans, and handling reimbursements for prescription medications. However, Trump’s remarks painted them as profit-driven intermediaries with no significant value added to the system, stating, “The horrible middleman that makes more money, frankly, than the drug companies, and they don’t do anything except they’re a middleman.”
His critique comes after discussions with executives from Pfizer (PFE), Eli Lilly (LLY), and the industry group PhRMA, where he focused on the disparity in drug pricing between the U.S. and other countries. Trump’s intention to “knock out the middleman” was clear as he promised to reduce drug costs to unprecedented levels.
The market reaction was immediate; CVS shares dropped by nearly 6% during afternoon trading, ultimately closing at $46.60. The stock continued its downward trajectory in after-hours trading, shedding an additional 0.45%. Cigna and UnitedHealth also experienced declines, with Cigna dropping 3.05% to close at $273.26, and losing another 0.10% in after-hours trading. UnitedHealth’s stock fell nearly 22 points, or 4.22%, closing at $498.50, and continued to slide in after-hours trading by an additional 0.60%, trading at $495.70.
In response, CVS defended its role, emphasizing its efforts to combat pharmaceutical price gouging through competitive practices and expressing willingness to engage with policymakers on the issue. They argued that limiting PBMs’ negotiation capabilities would leave patients vulnerable to unchecked drug pricing by manufacturers.
The scrutiny on PBMs isn’t new. They’ve been under investigation by the House Oversight Committee for their influence on drug pricing. Additionally, the Federal Trade Commission has taken legal action against Caremark, Optum, and Express Scripts, alleging these PBMs have engaged in practices that limit access to cheaper insulin alternatives, steering patients towards pricier options to boost profits.
Trump’s policy direction suggests a potential overhaul of how PBMs operate, which could lead to significant changes in how prescription drugs are priced and managed in the U.S. This could affect everything from insurance premiums to the availability of affordable medications, with implications for both the healthcare industry and consumers. However, the exact mechanisms and outcomes of such policies remain to be seen, given the complex interplay between drug manufacturers, PBMs, insurers, and regulators.
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